Subgame Perfect Equilibria and Communication in Stage Games

Arizona State University, Department of Economics Working Paper No. 99/1

26 Pages Posted: 12 May 2000

See all articles by Alejandro Manelli

Alejandro Manelli

Arizona State University (ASU) - Economics Department

Date Written: July 1999

Abstract

Any stage-game with infinite choice sets can be approximated by finite games obtained as increasingly finer discretizations of the infinite game. The subgame perfect equilibrium outcomes of the finite games converge to a limit distribution. We prove that (i) if the limit distribution is feasible in the limit game, then it is also a subgame perfect equilibrium outcome of the limit game; and (ii) if the limit distribution prescribes sufficiently diffused behavior for first-stage players, then it is a subgame perfect equilibrium outcome of the limit game. These results are potentially useful in determining the existence of subgame perfect equilibria in applications. As an illustration of this potential, it is shown that the addition of cheap talk to the games considered restores" the existence of subgame perfect equilibria.

JEL Classification: C70

Suggested Citation

Manelli, Alejandro, Subgame Perfect Equilibria and Communication in Stage Games (July 1999). Arizona State University, Department of Economics Working Paper No. 99/1, Available at SSRN: https://ssrn.com/abstract=181793 or http://dx.doi.org/10.2139/ssrn.181793

Alejandro Manelli (Contact Author)

Arizona State University (ASU) - Economics Department ( email )

PO Box 873806
Tempe, AZ 85287-3806
United States
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